Only the rich can afford to buy a house in Britain — and these charts prove it

Upmarket property agent Savills has come up with the data to back
up an anecdotal supposition that many in Britain have — that the
property market "only really works for income rich (and typically
equity rich) households."

In a note published by Savills Research this week, associate
director Neal Hudson found that price growth in the UK became
dislocated from growth in average incomes, loan-to-income
multiples, and average loan-to-value ratio around 2003.
Savills

That means price growth is bring driven by above average
incomes and Hudson says as much as 40% of property price growth
comes from the rich, who can afford to bid up prices. In short,
the influence of the rich in the market is now disproportionate,
or as Hudson puts it: "The average buyer no longer has an average
income."

The increasing influence of rich buyers corresponds to a rise in
the number of top end mortgage borrower — those with a household
income above £50,000 ($76,000) — and a fall in mortgages for
those earning below that level, shown in the chart
below.Savills

The average income in the UK is around £25,000 ($38,000), which
means an average couple applying for joint mortgage would only
just hit the £50,000 threshold.

Hudson writes:

Home ownership is in general now limited to those who are both
income and equity rich. It is for this reason that the average
age of first time buyers has barely changed in recent years
(despite some commentary to the opposite). You can either afford
to buy and do so at similar ages to previous first time buyers,
or you can’t afford to and so don’t buy.

Increasingly you have to have rich parents and/or a good job to
get on the housing ladder. And not just to get on early, but to
get on at all.

The average age of first-time buyers is in the early 30s and has
stayed around that level pretty steadily since 1990. If you can't
afford to buy by then, the likelihood is you never will be able
to and will be trapped renting your whole life.

This is backed up by the below graph that shows the household
income for first time buyers and home movers has jumped relative
to the national average incomes over the last 40 years, with a
particularly pronounced leap after 1993.

First-time buyers in Britain are now typically in the 7th richest
10% of the country, while those moving house are typically in the
top 9th decile.Savills

With increasing home ownership firmly in the Government’s sights,
the challenge for them will be in how to take a tenure that
currently only really works for income rich (and typically equity
rich) households and make it accessible for those currently
living in the rented sectors and sitting at the bottom of the
income distribution.

Many of the currently proposed solutions (e.g. Right to
Buy and Starter Homes) will still be unaffordable to households
on the lowest incomes and that could potentially lead to
tensions between the Government and market regulators. Some parts
of Government are now touting shared ownership as a possible
solution to this issue and I’ll look at whether that could work
for lower income households in a future note.

Developers are being allowed to sidestep quotas on building
affordable housing if they are building "Starter Homes", meaning
supply is being constrained. Right to Buy is being extended to
let housing association residents buy their property at a
discount, thereby reducing the number of affordable rental
properties. And housing benefits are being tapered to bring
people to pay market rate rents, putting a further squeeze on low
earners.

That's a huge number of people who will either need government
support, be forced to move in with family, or, in the worst
cases, face homelessness.

Meanwhile, government policies look likely to do little to extend
the bracket of people who can benefit from Britain's property
market. Savills says in Monday's report: "The combination of
Starter Homes, shared ownership and Help to Buy all help
households with £45,000 to £90,000 annual income." So pretty much
all the rich then.